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Corruption at Hedge Funds Even More Rampant Than You Think, Study Shows


Michael Steinberg of hedge fund SAC Capital Advisors, charged with insider trading.

 

Are Hedge funds managers responsible for the current financial woes and should they be punished. Up to to you to make up your own mind 

If a new report about hedge fund corruption is to be believed, the industry is overrun with unethical and illegal activity. Some 46% of people at hedge funds believe their competitors break the law or act unethically and 30% say they’ve seen wrongdoing themselves.  Less than a week after F.B.I. agents handcuffed SAC Capital portfolio manager Michael Steinberg and escorted him from his Park Avenue apartment, the  report, released yesterday, says that more than a third of hedge fund professionals believe they have to break the rules to get ahead.

The report was released by New York law firm Labaton Sucharow, which specializes in representing plaintiffs in securities class action cases and whistleblower actions, together with HedgeWorld, a news and research service, and the Hedge Fund Association, a trade group. They commissioned an anonymous online survey  of 127 hedge fund professionals conducted between Feb. 25 and March 17.

According to Jordan Thomas, chair of the whistleblower practice at Labaton Sucharow, the survey was an attempt to gauge the extent of wrongdoing inside of hedge funds and the likelihood that hedge fund professionals would report illegal activity to the authorities.

A portion of the Dodd-Frank financial reform law, which passed in 2010, was intended to make it easier for people in the securities industry to report wrongdoing. Whistleblowers can remain anonymous, their jobs are protected by law and they are entitled to 10%-30% of the monetary sanctions the SEC gets in such cases.

Despite those protections the survey found that 29% of respondents still think they could experience retaliation if they report wrongdoing at their fund.

In addition, 28% said that if leaders of their firm learned that a top performer had engaged in insider trading, the leaders would be unlikely to report the misconduct. Thirteen percent said they believe firm leaders who find out about wrongdoing  would just ignore the problem. Another 13% said that people who work at hedge funds may need to do unethical or illegal things to be successful and the same number admitted they would commit a crime–insider trading–if they could make a guaranteed $10 million and get away with it.

More than half of the respondents, 54%, said they though the SEC was ineffective in detecting, investigating and prosecuting securities violations.

Thomas, who worked as the assistant chief litigation counsel in the SEC’s enforcement division until July 2011, says there is a silver lining to the new survey. It asked whether respondents would report wrongdoing if they were protected by the provisions of the Dodd-Frank whistleblower law. Eighty-seven percent said they would. Eighty-three percent said they were already aware of the program. But seriously? They say corruption is rampant, and the vast majority would report it—when few actually do.

“The 87% represents hope,” says Thomas. “It is likely that the law will lead to more reporting in the industry.”

Still, there is obviously a disconnect between that hope and the reality that nearly a third of respondents say they believe that they would be retaliated against if they reported wrongdoing at their firm. It also could be that the protections and potential monetary awards just aren’t  enough to motivate people to come forward. Or cheating in the hedge fund industry simply remains, far too much, business as usual.

via Corruption at Hedge Funds Even More Rampant Than You Think, Study Shows – Forbes.

via Corruption at Hedge Funds Even More Rampant Than You Think, Study Shows – Forbes.

Goldman Sachs loses bid to keep shareholder proposal to split chairman and CEO roles off proxy statement


images

 

Chalk another one up for activist investors.

Goldman Sachs yesterday lost its bid to keep a shareholder proposal to split the chairman and CEO roles off its proxy statement.

Yesterday, the Securities and Exchange Commission informed the bank that it couldn’t block the proposal from being included among a list of proposals at its next annual shareholder meeting.

The proposal was sent by CtW Investment Group, which owns just 25 Goldman shares, for inclusion on the proxy.

Goldman argued that the proposal was vague and didn’t merit a vote. The SEC said it’s “unable to concur” with that view.

Lloyd Blankfein currently holds both titles at the gold-plated investment bank, which argues that it benefits from having a unified voice at the head of the firm.

The proposal to split the chairman and CEO roles is one that Goldman has faced several times in the past.

Last year, Goldman named James Schiro as a lead independent director in an effort to quiet activism from pension plan American Federation of State, County and Municipal Employees.

AFSCME also recently made a similar request for JPMorgan to split its chairman and CEO roles, which are currently held by Jamie Dimon.

via Goldman Sachs loses bid to keep shareholder proposal to split chairman and CEO roles off proxy statement – NYPOST.com.

via Goldman Sachs loses bid to keep shareholder proposal to split chairman and CEO roles off proxy statement – NYPOST.com.

Occupy the SEC, Frustrated With Regulatory Defiance of Volcker Rule Implementation Requirements, Sues Fed, SEC, CFTC, FDIC and Treasury « naked capitalism


Occupy the SEC, Frustrated With Regulatory Defiance of Volcker Rule Implementation Requirements, Sues Fed, SEC, CFTC, FDIC and Treasury

Occupy the SEC has filed suit in the Eastern District of New York over the failure of the relevant financial regulators to issue a Final Rulemaking as stipulated in Dodd Frank.

If you read the claim below, you’ll see that the various regulators were given specific dates as to when to complete the rulekmaking. Not only are the out of compliance, they appear to have no intent of finalizing the Volcker Rule.

Occupy the SEC Volcker Rule Lawsuit 2/26/13 by

It is easy to dismiss this sort of undertaking as quixotic or agitprop, but that misses the point. If you look at effective opposition movements in other countries, such as Otpor in Serbia, they used stunts and humor to, as the BBC put it,

…dispel fear among those who want to show their opposition to the government.

And for long periods of time, while the rest of the opposition was in a state of slumber, Otpor demonstrated that there was a group of people who were prepared to overcome an all-pervasive apathy and demonstrate against the regime. Whatever the methods used, Otpor has always given proof of a seriousness of purpose.

In the US, the challenge is somewhat different. While the issue of widespread apathy is the same, one critical difference is that much of the public still fails to understand the degree to which the ruling classes no longer represent their interests. Oh, they may resent the banks, and they may also hate Congress, but most people deeply need to believe they live in a system that is fair and where business and political leaders (some if not all) still deserve respect and admiration. So efforts like this suit, which in a few short pages sets forth regulators have simply refused to do their job, whether out of intellectual laziness or due to their indulgence of bank stymieing tactics, puts another chink in the official defenses of cronyism.

via Occupy the SEC, Frustrated With Regulatory Defiance of Volcker Rule Implementation Requirements, Sues Fed, SEC, CFTC, FDIC and Treasury « naked capitalism.

Goldman Sachs and the ‘Suspicious’ Heinz Trades


Goldman Sachs and the ‘Suspicious’ Heinz Trades

Goldman Sachs may be co-operating with the SEC over suspicious GS trades that netted someone in Goldman $1.8 million in call options but co-operation should also include transparency in Goldman’s subsidiaries so that people who do such trades can be identified.

Goldman thrives on secrecy and opaqueness.

US judge freezes Goldman Sachs account over ‘suspicious’ Heinz trading

Bloomberg News

A US judge froze a Goldman Sachs account that regulators say was used to make suspicious trades in H J Heinz, after unknown traders failed to appear in court to defend their claims to the assets.

 

When the unidentified traders didn’t show up at a hearing on Friday in Manhattan, a US district judge, Jed Rakoff, said he would grant the US Securities and Exchange Commission‘s (SEC) request to freeze the Goldman Sachs account in Zurich until the case was resolved.

“They can hide, but their assets can’t run,” Mr Rakoff announced, saying he had granted the SEC’s request and signed the freeze order.

The agency said in its complaint that the trades came a day before Warren Buffett‘s Berkshire Hathaway and 3G Capital announced the US$23 billion (Dh84.4bn) takeover of Pittsburgh-based Heinz. The suspicious trading involved call-option contracts, the SEC said.

Goldman Sachs told the regulator it doesn’t have “direct access” to information about the beneficial owner behind transactions in the account. The New York-based bank told the agency the account holder is a Zurich private-wealth client, the SEC said. Goldman has said it is co-operating with authorities.

The SEC on February 15 sued “unknown” traders who used an “omnibus account” and invested almost $90,000 in Heinz option positions the day before the deal was announced. As a result, their position increased to more than $1.8 million, a rise of almost 2,000 per cent in one day.

The SEC, which obtained a preliminary freeze on the funds from Mr Rakoff on February 15, said that the traders had material nonpublic information about the impending deal when they bought 2,533 call options, which had a strike price of $65 on February 13. Shares closed that day at $60.48.

Heinz shares jumped 20 per cent to $72.50 on February 14, following the announcement that Berkshire Hathaway and Jorge Paulo Lemann‘s 3G Capital had agreed to buy Heinz. As a result of the takeover announcement, the price of the June call options jumped to a close of $7.33 on February 14 from 40 cents the day before, an increase of more than 1,700 per cent.

Mr Rakoff, who on February 15 put a temporary freeze on the assets in the Goldman Sachs account, directed anyone connected to the trades to appear before him at 2pm local time on Friday to explain why the assets should not be permanently restrained.

The FBI said last week that it was also investigating the matter and was working with the SEC.

The SEC wants the assets frozen until the case is resolved because there is a “serious risk that the substantial proceeds from the defendants’ trading will leave the jurisdiction of the US courts in the next few days and may never be recovered,” according to a court filing.

* Bloomberg News

 

 

Read more: http://www.thenational.ae/business/markets/us-judge-freezes-goldman-sachs-account-over-suspicious-heinz-trading#ixzz2LzORmXo1 

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Insider Trading at Goldman Sachs?SEC sues unknown traders over Heinz options


It will be interesting to see what comes of the insider trading prompted by the Heinz sale.

In this product image provided by H.J. Heinz Co., the new Dip & Squeeze Heinz Tomato Ketchup package is shown. The new design has a base that's more like a cup for dipping and also a tear-off end for squeezing, plus it holds three times as much ketchup than a traditional packet.

U.S. securities regulators filed suit on Friday against unknown traders in the options of ketchup maker H.J. Heinz Co, alleging they traded on inside information before the company announced a deal to be acquired for $23 billion by Warren Buffett‘s Berkshire Hathaway Inc and Brazil’s 3G Capital.

The suit, in federal court in Manhattan, cites “highly suspicious trading” in Heinz call options just prior to the Feb. 14 announcement of the deal. The regulator has frequently in past filed suit against unnamed individuals where it has evidence of wrongdoing, but is still trying to uncover the identities of those involved.

That trading, the suit said, caused the price of the particular call option they bought to soar 1,700 percent and generated unrealized profits of more than $1.7 million.

The regulator claims the traders are either in, or trading through accounts in, Zurich, Switzerland. The account had no history of trading in Heinz over the last six or so months.

It has also obtained an emergency order to freeze assets in the Swiss account linked to the trading. In the suit, the SEC refers to the account as the “GS Account” and in a statement Goldman Sachs Group Inc said it was cooperating with the regulator’s investigation.

“Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag that traders may be improperly acting on confidential nonpublic information,” Daniel Hawke, chief of the SEC’s Division of Enforcement’s Market Abuse Unit said in a statement.

Representatives of Heinz and Berkshire Hathaway were unavailable for immediate comment. A 3G representative declined to comment. The founder of 3G, Jorge Paulo Lemann, is from Brazil, but has made a home in Switzerland since the 1990s. He has not been implicated in any wrongdoing related to the deal.

After the deal was revealed on Thursday, options market experts called Wednesday’s trading “suspicious and incredibly well-timed.”

The suit marks the second time in less than six months that the SEC has taken action over a 3G acquisition. In September 2012, the regulator got a court order to freeze the assets of a Wells Fargo & Co stockbroker who allegedly traded on inside information about 3G’s 2010 acquisition of Burger King.

In that case, the SEC said the stockbroker got the information from a client who had invested in one of 3G’s funds.

The suit also marks the second time in two years that controversy has erupted over a Berkshire acquisition target.

In March 2011, Berkshire struck a deal to buy chemical company Lubrizol for $9 billion. Less than three weeks later, Berkshire said Buffett lieutenant David Sokol was resigning and disclosed he had been buying Lubrizol shares while pushing Buffett to acquire the company. The SEC dropped a probe into Sokol’s trading earlier this year.

The suit is Securities and Exchange Commission v. Certain Unknown Traders in the Securities of H.J. Heinz Co, U.S. District Court, Southern District of New York, No. 13-1080.

via Goldman Sachs: Information, Comments, Opinions and Facts: Insider Trading at Goldman Sachs?.

via Goldman Sachs: Information, Comments, Opinions and Facts: Insider Trading at Goldman Sachs?.

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